What is the implication of Sunday’s rebasing of the Gross Domestic Product (GDP) for the financial inclusion policy of the Central Bank of Nigeria (CBN)? To analysts, it is negative. COLLINS NWEZE reports that stakeholders will have to work harder to address this ‘negative impact’.
Sunday’s rebasing of the Gross Domestic Product (GDP) may have thrown up some challenges for banks, which are grappling with the policy of the Central Bank of Nigeria (CBN) on financial inclusion. The CBN advised banks to provide access to financial services and products to reduce the number of the under banked.
According to CBN, the financial inclusion strategy is meant to reduce the number of adult Nigerians excluded from formal financial services from 46.3 per cent in 2012 to 20 per cent in 2020, with specific targets for payments, savings, credit and insurance.
It said sustaining Nigeria’s development would ensure that at least 80 per cent of adult Nigerians have access to financial services as well as the right environment in which to flourish. This desire prompted the CBN to issue Agent Banking Guidelines to reach the grassroots where bank branches are scarce, but services highly needed.
Banks have also simplified account opening procedures, lowering minimum account opening deposit to as low as N1,000. Also, the Know Your Customer (KYC) policy requirements have been eased to accommodate the grassroots.
Despite these efforts, analysts think higher GDP implies that banking penetration is lower than the previous GDP series suggested. They also said the gap between Nigeria’s and East Africa’s bank penetrations is even bigger than was thought.
Renaissance Capital (RenCap) sub-Saharan African banks analyst Nothando Ndebele said the economy would reflect the sectoral distribution of the industry’s loan book.
She said: “Kenya’s loans/GDP of 38 per cent is almost double that of Nigeria, at 21 per cent against 38 per cent pre-rebasing. This explains why retail banking in Nigeria is at a nascent stage. But we think this means the banking sector’s growth potential is even greater than we initially thought.”
The CBN said financial inclusion has been defined in various ways around the world, but the essence of inclusion is tied to economic development and providing a better way of life for Nigerians.
The regulator has over the years recognised certain barriers to achieving inclusion some of which include distance to bank branches, cumbersome account opening requirements, lack of awareness of financial products and services, among others.
“As a regulator, we also recognise the challenges deposit money banks face in trying to reach the underserved communities which include the cost incurred by the banks in catering to lower valued accounts and the cost of expanding their branch networks to excluded communities,” it said in a statement.
The apex bank has, however, taken a stand to ensure that these barriers are broken and several steps taken to address these constraints have been taken. Some of these include agent banking. The guidelines for agent banking have been approved by the CBN. They are to ensure increased agency in the delivery of banking services outside traditional brick and mortar bank branches, through additional financial access points, such as existing retail stores, petrol stations, post offices or via technology such as ‘Point of Sale’ (POS) devices and mobile phones.
What banks are doing
To drive agent banking system that was recently introduced in the country, Sterling Bank Plc has deployed biometrics enabled point of sale (PoS) terminals at its agent banking outlets in the country. The bank said the move would promote financial inclusion.
At a forum in Lagos, Group Head, e-Business, Sterling Bank, Mr. Fatai Amoo, said about 30 million Nigerians can’t read or write, adding that the device would help bring them into the banking system. With the biometric solution, all that is required from customers are their fingerprints.
He said: “We have over 30 million adults who are unlettered and whenever they want to use their ATMs they would tell anybody around their pin. We all know that, that is risky and a lot of people have fallen victim. Our agent banking solution has brought to an end, this kind of issues. We have been able to deploy a solution that runs on biometrics. Whether you are lettered or not, literate or illiterate, God has given all of us our fingers.”
Heritage Bank is also offering traders and artisans of Gbagada Plank Market in Lagos agent banking services. In a statement, the bank said the customers now have the opportunity to enjoy financial services without visiting any physical branch location.
The lender, last week, launched its agent banking scheme with the opening of what it calls the ‘Corner Shop’ bank in the market.
“The choice of the market as the first place to launch our agent banking is deliberate. We decided to launch our agent banking in this market because of the importance we attach to the business that you do”, its Executive Director, Ivory Banking, Mary Akpobome said.
How it works
The use of biometrics-enabled PoS with a well-tested application that has been successful in India that shares some similarities with Nigeria; agents that are carefully selected are then authorised to carry out certain transactions, among others for customers under the scheme such as the enrolment of new customers in line with the CBN Level KYC requirements, deposits, withdrawals, airtime top-up and bill payment and funds transfer.
Hitches
This cannot be done with the unbalanced distribution of bank branches in the country. According to the Nigerian Deposit Insurance Corporation (NDIC), out of the 869 licensed micro finance banks (MFBs) in the country, 346 or 39.8 per cent are located in the Southwest geopolitical zone, 162 or 18.64 per cent in the Southeast, 158 or 18.8 per cent in the Northcentral while only 63 or 7.2per cent and 32 or 3.6 per cent are located in the Northwest and Northeast. Lagos, Anambra and Abuja have the highest number of MFBs.
Agent banking is part of efforts to increase the level of financial inclusion in the country, according to the Managing Director of the NDIC, Alhaji Umaru Ibrahim.
Agent banks operate in simple ways such that they could be operated by supermarkets, gas stations, stores and the likes as they are not full-fledged banks. The Kenyan model of agent banks are usually equipped with a combination of PoS card reader, mobile phone, barcode scanner to scan bills for bill payment transactions, Personal Identification Number(PIN) pads, and sometimes personal computers (PCs) that connect with the bank’s server using a personal dial-up or other data connection.
Clients that transact at the agent banks use a magstripe bank card or their mobile phone to access their bank account or e-wallet respectively. Identification of customers is normally done through a PIN, but could also involve biometrics. With regard to the transaction verification, authorisation, and settlement platform, banking agents are similar to any other remote bank channel.
According to the NDIC chief, agency banking would go a long way in reaching out to the largely unbanked population by creating banking representations where banks ordinarily do not have enough resources to establish branches.
Ibrahim said agent banking is a complementary policy that is worthy of emulation as it would provide simple banking services to a variety of people on behalf of various banks.
Analysts say agent banking has the potentials to grow access to banking facilities in the country especially to the uneducated and those in rural areas. Another area where agents could be meaningfully deployed is in the mobile payment system as successfully done in Kenya and some other countries.
Agent banking, however, comes with its own risks as banks and their customers would be faced with agent fraud, unauthorised fees, loss of customer assets and records, data entry errors, system failures as well as a host of others.
These, they noted would have negative impact on the image of the banks affected as customers’ confidence in them would water down, lowering their customer and profit base.
On how agent banking could impact the universal banking model, the NDIC chief stated that it would only complement the current banking models. He dispelled fears that banks with national banking license would become lax in branch expansion saying “the banks will now be able to decide which will be more cost effective for them in reaching out to their customers, either opening up branches or using agent banks.”
In 2009, the CBN adopted measures to open up banking channels to non-bank agents. An amendment to the Banking Act (passed as part of the Finance Act 2009) allowed banks to start using agents to deliver financial services. Using small shops, petrol stations, pharmacies and other retail outputs as agents could have a dramatic impact on improving access to financial services, especially in rural areas.
According to Principal Associate, MobileMoneyAfrica Emmanuel Okoegwale, there is need to define clear operational processes, guidelines and procedures for operating and managing an agency network will improve the spread of financial services along areas of strong compelling needs.
He noted that a lesson ought o have been learnt from the micro-finance sector “where providers that were supposed to be active in the underserved and rural communities where competing with commercial banks on high street and chasing after high net worth depositors to the detriment of the rural unbanked.”
Without doubt, agent banking will favour the banks in terms of profitability and spread, but there is still the issue of trust as much would not be achieved without enough provisions made for customers’ protection.
Kenya example
The agent banking model started in May 2010 after Kenya changed its laws to allow commercial banks to offer their services through third-party businesses which has helped raise the profits and spread of the country’s bank.
The agents are conveniently located at commercial outlets like shopping malls, post offices, petrol stations, laundry shops, cybercafés, chemists, eateries and supermarkets, with the belief that people will deposit cash, withdraw and open accounts, services that most people seek in banks, through agents.
However, the Kenya model seems to be having trust issues as local media in the country report that bank customers still prefer to make use of the banking halls rather than the agents who are much closer to them.
Some customers said they preferred to make use of the banking halls due to confidentiality of the banks compared to the agents as well as the charges they have to pay when they use the agents.
Although agent banking was introduced in the country as a measure to decongest the banking halls, the banks continue to service more customers than the bank agents.
It is said while some tellers in the banking halls serve more than 200 customers daily, some banking agents serve less than five people per day in Kenya.
